3.26.2009

British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)

The British Pound may see selling pressure in European hours with UK Retail Sales set to drop -0.4% in February, the first decline in four months. Overnight data saw New Zealand’s Current Account deficit widen to a record level in the fourth quarter while a leading economic index from the Conference Board added to evidence that Australia will see recession in 2009.

Key Overnight Developments

• New Zealand Current Account Deficit Widens to Record Level in Q4
• Australian Economy Shrinking At Pace Unseen Since 2001, Says Conference Board

Critical Levels



The Euro traded sideways in a choppy 60-pip range above 1.3550 in the overnight session. The British Pound inched higher, adding as much as 0.5% against the US dollar to test above the 1.46 level.

Asia Session Highlights



New Zealand’s Current Account deficit widened more than economists expected, showing a shortfall of –NZ$4.03 billion in the fourth quarter. In annual terms, the deficit widened to a record –NZ16.07 billion in the year to December. The deficit now amounts to 8.9% of the economy’s total output, the largest among industrialized countries, and is expected to remain higher than New Zealand’s counterparts at least through 2010. Standard & Poors has said that it may cut the country’s sovereign credit rating on concerns that it won’t be able to adequately fund the shortfall. If this proves to be the case, it will imply a net outflow of money out of the country and threaten the value of the currency. Adding to the dour outlook, the International Monetary Fund said today that it expects New Zealand’s economy to shrink 2% through 2009, noting “households are constrained by high debt levels, falling house and equity prices, and uncertain employment prospects.”

Australia’s Conference Board Leading Index fell for the fifth consecutive month in January, printing at -0.6%. The reading is intended to forecast how the economy will perform in the next three to six months. The component measuring new building approvals led the decline, reflecting the deepening global recession and credit shortage that has steered consumers away from big-ticket purchases. In a statement accompanying the release, the Conference Board noted that “the leading index is now falling at rates not seen since 2000-01,” adding to evidence that Australia will sip into recession this year. A leading index published by Westpac Banking Corp echoed the same sentiment last week, falling to levels “consistent with contracting economic activity.” Australia’s GDP unexpectedly shrank -0.5% in the fourth quarter, the first negative print in 8 years, with a recession confirmed should the economy contract again in the three months to March. Minutes from the last policy meeting of the Reserve Bank of Australia said the central bank has “flexibility” to cut interest rates further, with overnight index swaps pricing in 25-50 basis points in easing over the next 12 months.

Euro Session: What to Expect



UK Retail Sales headline the economic calendar in European hours, with expectations calling for a -0.4% drop through February, the first negative reading since September, to bring the annual growth rate down to 2.5% from 3.6% in the preceding month. Rising unemployment is likely to weigh on disposable incomes, pressuring spending lower. Private consumption is the largest component of overall economic growth, so weakness here bodes ill for Britain’s ability to climb out of the current downturn. Indeed, the IMF has predicted that this time around the UK will see the worst recession among the G7 nations. A final revision of fourth-quarter GDP figures later this week is set to show that the economy shrank -1.5% in the three months to December 2008, the most in nearly three decades.

Although consumer prices rose in February, the uptick is unlikely to be reflective of a rebound in economic activity. Rather, the rise probably owes to currency depreciation, making foreign-made products more expensive for British consumers. Indeed, the British Pound slipped -0.8% against the currencies of its top import partners in February and a hefty -29.5% through 2008.

Written by Ilya Spivak, Currency Analyst
Article Source - British Pound in Play with UK Retail Sales to Shrink For First in Four Months (Euro Open)
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What is Forex?

If you would go out on a dinner with your friends or family and you mentioned that you were trading on the Forex market most of them wouldn’t know what you were talking about. The worst thing is that most of the Forex traders that join the Forex market don’t know what they are doing. Understanding what Forex is, is the first good step to your success at Forex trading.


The foreign exchange market (Currency, Forex, or FX) is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Forex transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. The foreign exchange market that we see today started evolving during the 1970s when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime, which remained fixed as per the Bretton Woods system till 1971.

Today, the Forex market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other institutions. The average daily volume in the global foreign exchange and related markets is continuously growing. Traditional daily turnover was reported to be over US$3.2 trillion in April 2007 by the Bank for International Settlements. Since then, the market has continued to grow. According to Euromoney's annual Forex Poll, volumes grew a further 41% between 2007 and 2008.

Forex Turnover

Forex Turnover
Main foreign exchange market turnover, 1988 - 2007, measured in billions of USD.
The purpose of Forex market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as US Dollar, Pound Sterling, Yen, etc., and the need for trading in such currencies. Since you aren’t buying anything physical this kind of trading can be confusing. When buying a currency think of it as buying a part in that particular country’s economy because the currency rate reflects the economical situation of the country when compared to others.

Currencies

Currencies
List of most popular currencies on the Forex market

Forex used to be a closed market because only the “big boys” because you needed between 10 and 50 million $ to open an account. But today, with the development of internet, online Forex brokers have the possibility to offer their services to “little” traders. All you need to start is a computer, fast internet connection and information which you can find on this page also.

This enormous market is like the dangerous sea where you can meet lots of sharks and dangerous waters but at the same time it is the only one where two weeks of trading can hypothetically bring you $1,000,000 out of $1,000 of initial investment.

This is certainly hypothetically because a lot of newbie traders deal with their trades as gambling, that surely bring them to having nothing in the end. You should always keep the phrase "be careful!" in your mind. This market would give you its profit possibilities only if you learn the basic things hard and make lots of demo trading.

The statistics is that as much as 95% of traders come to losing their money at Forex, 5% have profit and less than 1% of traders make large fortune at Forex. You shouldn't produce, sell or advertise anything trading at Forex. Your assets are your knowledge, experience and a small amount of cash.

This market is a platform for banks, transnational corporations and individual traders to change the currencies they possess into other ones. This is the spot Forex market. At this market you can trade with up to 1:400 leverage which means that you'll get $400 on your account for each dollar invested. So, you can trade with the $400,000 sum having invested $1,000 onto your account.

Forex is unique among other world markets because in any time of day and night, somewhere in the world, a financial centre is open for business, banks and corporations exchange currency all the time, with a little lower frequency during the weekend.

Why to trade on Forex?

1. There is no commission fee for trading at Forex.
2. There is no intermediary, you can trade directly at Forex.
3. Forex is open 24-hours a day.
4. Nobody can influence the market for a longer period.
5. High liquidity.
6. Free demo accounts, analysis and charts.
7. Small accounts that allow everyone to try out his luck.

Hope this has answered a lot of questions you were asking yourself about Forex and that you can now start trading. Also make sure that you check out other articles on this blog which can help you earn your fortune.

Good luck to everyone!